Trash contracts worth billions lack competition

Half of Orange County’s cities signed up with their garbage haulers 40 or 50 or even 60 years ago, and have never sought to learn if they could get a better deal for the residents and businesses who pay the bills.

A review of thousands of pages of documents by The Watchdog found that Orange County governments have awarded more than 40 exclusive contracts worth some $4.5 billion to private trash haulers – most without ever opening the process to competitive bidding – even though local experience and scholarly studies show that competition can dramatically slash rates.

The overwhelming majority of that trash business – some $3 billion worth – is tied up in what’s poetically termed “evergreen” agreements. These agreements never really expire and can renew into perpetuity, guaranteeing haulers a constant flow of dollars and millions in profits, virtually worry-free.

Who pays?

There are exceptions, but generally speaking, the highest residential trash rates in Orange County are paid by folks in cities with those long-term evergreen contracts that have never been put to bid, including Placentia ($22.66 per month), Stanton ($21.09), Anaheim ($19.90), Yorba Linda ($19.56) and Huntington Beach ($19.39).

The very lowest residential rates in Orange County are enjoyed by folks in a city that has never put its contract out to bid – those in Irvine.

How? Back in 1997 – when cities were just starting to open trash contracts to competition and shy away from evergreen agreements – Irvine began renegotiating its contract with long-time hauler Waste Management. Irvine played what one might call hardball: In exchange for extending Waste Management’s contract for 10 years, Irvine insisted on inserting a “lowest price guarantee” into the contract.

And there the guarantee remains. Irvine extended Waste Management’s contract for another 10 years back in 2007, and today, Irvine still has the lowest residential trash rates in Orange County: $10.79 for most folks, and $10.16 for low-waste generators with smaller carts.

Important detail: Irvine’s contract is a fixed-term, not an evergreen. Which means it does, indeed, expire. Which means it does, indeed, get regular scrutiny.

EVERGREEN

Today, 17 Orange County’s cities, and 10 unincorporated pockets administered by the county, have fixed-term contracts.

Seventeen still have evergreens.

We invited city officials and haulers to tell us what virtues evergreen contracts might have that we might be missing. Curiously, we had no takers.

But the last time we did this exercise – back in 1997 – officials were quicker to defend the closed approach to awarding these multimillion-dollar contracts. Price is just one piece of the puzzle in awarding trash contracts, they said: Quality and level of service are important, and when a hauler does a good job, it pays to keep the company; and it's much easier to keep track of service problems and recycling rates when there's one hauler instead of many.

Competitive bidding can also be dangerous, they said: It can lead to bid-rigging, in which deals are cut between rival haulers long beforehand to determine a winner; and it can lead to low-balling, where an unqualified company undercuts responsible haulers' rates, wins the contract and then is unable to do the job, leaving waste to rot on the streets.

The missed pick-ups endured by some Mission Viejo residents after the city switched haulers in 1995 were cited as an example of why cities stick with tried-and-true haulers. But more cities have gone out to bid or switched to fixed-term contracts since then, and pestilence and chaos has failed to materialize in the streets.

Waste Management, one of the big gorillas that doesn’t have evergreens in O.C. anymore, had this to say on the evergreen vs. fixed debate: “(W)e are here to provide a service based on the needs of our customers regardless of the type of contract. Our only consideration is for us to be able to recuperate the cost of our capital investments,” spokeswoman Eloisa Orozco said by email.

One of the most radical shifts right now is occurring in Newport Beach, the only city in O.C. that does its own waste hauling with city crews and old-fashioned, hoist-a-can-to-your-shoulder-and-dump-it-in-the-truck labor. With Newport’s equipment aging and the city seeking to streamline operations, City Manager Dave Kiff figured there was probably a better way to do things.

Amid some shock and awe, Newport Beach put its trash contract out to bid, and it’s currently in negotiations with a private hauler. Whatever emerges from those negotiations will not include an evergreen clause, Kiff said.

“We just don’t think the evergreen is a good idea,” Kiff, a good-government type, told us. “We think that it does keep it more cost-competitive if the companies know they have a window that’s a real window, where they can come in after seven or 10 years and truly compete. Having a contract that actually ends is a more responsible thing to do.”

In 2010, Yorba Linda cancelled the evergreen clause with the hauler it had since shortly before the Summer of Love. It was, however, a 20-year evergreen clause – meaning that there were always 20 years left on the deal. So, that 2010 notice means Republic will continue picking up Yorba Linda’s trash until 2029 -- about the time that we at The Watchdog will finally be eligible for Social Security.

“My interest is that other cities getting current bids on similar contracts are getting rates considerably less than Yorba Linda residents are now paying,” Mayor Mark Schwing told the Register in May.

Fountain Valley Mayor Mark McCurdy raised that issue in September, when his city was voting to renew its evergreen contract with Rainbow Disposal, hauler since 1957. “This is not about competency,” McCurdy said after several council members praised Rainbow's reliable and timely service. “It's important to periodically ensure that we have the best price package for our residents. Competition is the name of the game.”

McCurdy was the only no vote. Fountain Valley’s evergreen clause remains in force.

COMPETITIVE BIDDING

Scholars have noted that trash haulers and their employees are regular contributors to city council campaign coffers. A comfortable, cozy, and perfectly legal network of relationships builds up that makes it difficult for officials to turn on the company and say, “We're going to subject you to the cold winds of competition.”

From an administrative standpoint, it’s also a lot more work to take bids than to just allow a contract to keep renewing.

But more cities are doing so nonetheless. When The Watchdog last did this review back in 1997, only six of the county’s 31 cities and 10 county areas had ever put trash contracts out to bid. Today, 14 of its 34 cities and 10 county areas have asked for bids – though some were bid so long ago (Laguna Beach, 1972, La Habra, 1985) that rates have climbed as high and higher than some evergreen cities.

The consistency of competitive winds apparently makes a difference.

Mission Viejo became Orange County’s 27th city in 1988, and soon began fighting with the waste hauler it inherited – Dewey’s Rubbish. The new city believed that Dewey’s was overcharging residents. Opening the trash contract to competitive bidding was the “only proven way to ensure the highest level of service at the lowest cost that the market will bear,” then-Councilman Robert Breton said at the time.

So in 1992, seeking to set this concept into municipal stone, Mission Viejo placed Measure K on the ballot, establishing “a competitive process for the award of residential and commercial integrated waste management franchises” and a maximum franchise period of seven years. Voters overwhelmingly said yes, with 84 percent in favor.

“I definitely think that going out and seeking proposals from other haulers helps the competitive process,” said Denise Matson, environmental program administrator for Mission Viejo. “They know they are going to go up against other very capable companies, and they are going to have to go in with a good price. It’s very important to the City Council that the rate payers have low residential trash rates and that businesses have low rates as well – especially since it’s an exclusive agreement. It’s sort of our job to make sure we’re going to provide competitive rates.”

Similar ballot drama introduced competition into Tustin's garbage business in 1994. Measure J asked if the city's hauling contract should be put out to bid at least once every seven years – and a resounding 86 percent of voters said yes.

Newer cities ran with this. Laguna Hills asked for bids on its trash contract in 1995, and six haulers entered the fray. The winner was incumbent Solag – but residential rates slid from $15.89 to $12.

Lake Forest invited competition in 1996. Six haulers bid. The winner was incumbent Waste Management – but the exercise saved taxpayers more than $6.5 million over the contract's life, officials said. Lake Forest is in the midst of putting its contract out to bid again.

A couple of older burgs signed on, too. The city of Orange was rocked out of its comfort zone by scandal in 1997, when the son of its longtime hauler was accused of bilking the city out of $4.3 million. Orange pulled back its evergreen clause, and the contact finally went out to bid for the first time in 2008. Four companies competed, industry giant CR&R won, and residential rates slid from $13.40 to $11.42 a month, while commercial rates plunged from $99 to $47 per month.

Taking a cue, perhaps, from Irvine, Orange’s contract specifies that residential and commercial rates must be within the lowest one-third of all cities in Orange County.

The new and rather streamlined Rancho Santa Margarita also took bids on its trash contract in 2004. It inserted a clause guaranteeing rates in the lowest one-third, but agreed to an evergreen clause in exchange. It has lower rates than several cities that do not have evergreen agreements.

Competition can be a terrible headache. Los Alamitos put its waste contract on the block in 2010 and received bids from seven haulers. Long-time hauler Consolidated (Republic) got the contract, despite the fact that it wasn’t the low bidder. Lawsuits and judgments and policy changes followed, and conflict continues – which we’ll tell you about in more detail in coming days. But despite all the drama, Los Al has one of the lowest rates in the county.

We’ll tell you more about the millions of dollars in fees that haulers pay to cities for the privilege of getting those lucrative, exclusive contracts; how businesses can get clobbered while residential rates stay low; plus the interesting experiences of Costa Mesa (which does not play the exclusive franchise game, instead allowing many haulers to compete for commercial business) and Santa Ana (which has opened its contract to competition, but still has one of the highest residential rates in the county) soon.

Those stinky trash cans you wrestle to the curb mean big money to waste haulers. Here’s a list of what the exclusive contracts let by cities and special districts are worth per year, more or less, to the haulers. Not every city has identical service; some include street sweeping, bin washing, etc.

City/District

Contract generates for hauler, per year

Hauler

Aliso Viejo

$ 5,154,393

CR&R

Anaheim

$ 35,005,092

Republic

Brea

$ 7,340,826

Republic

Buena Park

$ 9,600,033

Edco

Costa Mesa residential

(administered by sanitary district)

$ 5,000,000

CR&R

Costa Mesa commercial

(administered by city)

n/a

10 haulers compete

Cypress

$ 5,964,754

Republic

Dana Point

$ 4,048,952

CR&R

Fountain Valley

$ 6,971,320

Rainbow

Fullerton

$ 8,708,980

Republic

Garden Grove

$ 18,570,812

Republic

Huntington Beach

$ 27,279,792

Rainbow

Irvine

$ 11,752,700

USA Waste/ Waste Management

La Habra

$ 3,904,031

USA Waste/ Waste Management

La Palma

$ 807,067

Edco

Laguna Beach

$ 3,916,171

USA Waste/ Waste Management

Laguna Hills

$ 2,400,000

CR&R

Laguna Niguel

$ 7,480,917

CR&R

Laguna Woods

$ 1,600,000

Ware Disposal

Lake Forest

$ 6,450,506

USA Waste/ Waste Management

Los Alamitos

$ 2,170,585

Republic

Mission Viejo

$ 7,257,866

USA Waste/ Waste Management

Newport Beach

$ 4,949,000

service provided by city workers; competitive contract now under negotiation

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